The Allstate Blog » Bethy Hardeman, CreditKarmahttp://blog.allstate.com
Expert tips and fun facts on protecting your car, home, motorcycle or RV from Allstate Auto InsuranceFri, 31 Jul 2015 13:13:31 +0000en-UShourly1http://wordpress.org/?v=4.2.3How to Start Improving Your Credit Health Right Nowhttp://blog.allstate.com/how-to-start-improving-your-credit-health-right-now/
http://blog.allstate.com/how-to-start-improving-your-credit-health-right-now/#commentsWed, 24 Apr 2013 11:00:41 +0000http://blog.allstate.com/?p=4518You might not think about your credit that often, but when it comes time to apply for a loan it’s a top priority. The thing is, if you wait until that moment to concern yourself with your credit health, it’ll may be too late to do anything about it. So instead of waiting until you […]

]]>You might not think about your credit that often, but when it comes time to apply for a loan it’s a top priority. The thing is, if you wait until that moment to concern yourself with your credit health, it’ll may be too late to do anything about it.

So instead of waiting until you need it, anticipate that someday you’ll probably apply for a mortgage or auto loan—or even a credit card—and take a few steps to start improving your credit health today.

Get rid of credit errors.

Get in the habit of checking your credit report on an annual basis to make sure that it is accurate.

Check your three, free credit reports from AnnualCreditReport.com. You’re entitled to these once per year. After you’ve pulled your reports, go through them thoroughly to check for errors. You should look out for things like accounts you don’t recognize, late payments on accounts you’ve always paid on time, erroneous derogatory marks and even incorrect personal information. Small errors, like a wrongly reported mailing address, shouldn’t affect your credit score. But an incorrectly reported account could.

If you spot an error, use the FTC’s guidelines for disputing it with the credit bureau. If that doesn’t work, you can also go directly to the information provider to see if they’ll stop reporting the incorrect information.

Spot future errors early on by getting a credit monitoring service, like Credit Karma’s free one. You’ll be alerted to important changes on your credit report and can act quickly if you don’t recognize them.

Get a higher limit.

One of the most important factors of your credit score is your average credit card utilization rate. This percentage shows creditors how much of your available credit you’re using. Ideally, you should keep this number to less than 30 percent for good credit health.

One way to ensure your credit utilization stays low is to get higher credit limits on your credit cards. This should not lead you to spend more on your cards; it should just give you a nice buffer to stay well below a 30 percent utilization rate.

Most credit card issuers review and raise credit limits every six months or so. If it’s been a while since your last credit limit increase, try the direct approach. Call up your credit card company to request one, calling out your responsible credit behavior. Keep in mind that a request like this can sometimes result in a hard credit inquiry, which will ding your score a few points.

Use your old credit cards.

Unless you have a really good reason for closing out an old credit card account—like a high annual fee, for instance—keep these cards open and active. Creditors like to see long credit histories, especially if they’re clean. But it’s not enough to just keep old cards open; you also have to use them. The reason for this is that some credit card companies will close out inactive cards or at least stop reporting them to the credit bureaus. This can unexpectedly reduce your utilization rate, too.

Make a small purchase or two on your oldest card, or set up a recurring charge like a gym membership. Just make sure to pay off the balance each month.

Bottom Line:This should give you a good start in improving your credit health. Of course, make all of your bill payments on time; that’s the best way to maintain good credit health once you have it.

Bethy Hardeman writes on credit, personal finance and the economy for CreditKarma.com, a free credit management website that helps more than 8 million people access their credit score for free.

Bethy Hardeman is not an Allstate employee and does not represent Allstate. She did not receive monetary compensation for this post.

]]>http://blog.allstate.com/how-to-start-improving-your-credit-health-right-now/feed/05 Biggest Credit Score Myths, Debunkedhttp://blog.allstate.com/5-biggest-credit-score-myths-debunked/
http://blog.allstate.com/5-biggest-credit-score-myths-debunked/#commentsWed, 05 Sep 2012 11:00:22 +0000http://blog.allstate.com/?p=3080A credit score is a three-digit number meant to predict whether or not you’ll pay back your debts. It’ll make or break you when you’re applying for any line of credit, from a credit card to a mortgage. And it can be a little confusing. There are countless articles, blog posts and even books published […]

]]>A credit score is a three-digit number meant to predict whether or not you’ll pay back your debts. It’ll make or break you when you’re applying for any line of credit, from a credit card to a mortgage. And it can be a little confusing.

There are countless articles, blog posts and even books published on the topic of explaining credit scores and clearing up misconceptions. But just in case you don’t have time to read all of that, here are five myths about credit scores, debunked.

Myth #1: “I have just one credit score.”

This is the biggest misconception about credit scores. It’s easy to think that you have one—and only one—credit score. But the truth is that you have dozens, depending on which credit scoring model is used. The three credit bureaus (Equifax, Experian and TransUnion) each have their own proprietary credit score model, along with other scoring models based on the type of lender requiring a score. A mortgage lender will want to look at slightly different factors than a credit card issuer, so a different scoring model is used. The Consumer Financial Protection Bureau explained these differences and consumer confusion about them in a recent report.

The fact that you have multiple credit scores doesn’t mean you shouldn’t be monitoring your credit regularly. Using an online credit tool [link to creditkarma.com] can help you understand the individual factors that influence your credit score. In other words, you won’t just see your score, you’ll see why it is the way it is.

Myth #2: “If I check my credit score, it’ll hurt my credit.”

There are two types of credit checks: a hard inquiry and a soft inquiry. Hard inquiries occur when a lender checks your credit to determine whether or not to lend to you, like when you apply for a credit card or mortgage. This type of credit check will ding your score a few points, although the impact will lessen after just a couple of months.

A soft inquiry occurs when your credit is checked for any other reason—with some exceptions. When you check your credit, it’s a soft inquiry, and it won’t hurt your credit score at all. The same goes for when an employer checks your credit. The tricky part is that some credit checks can be either hard or soft, like when you open a new bank account or apply for an apartment. When you know a credit check is going to be performed, ask to see what kind of inquiry it will be.

Myth #3: “More debt means a lower credit score.”

In most cases, more debt is actually good for your credit score. But only if you manage it well. Here’s why: If you’re making timely payments on an auto loan, mortgage and some credit cards, you’re proving that you’re a reliable borrower. Future lenders and creditors will see this behavior as a good indicator that you’ll keep paying back your debts in the future. On the flipside, if you don’t have any debt at all, lenders and creditors have nothing to go on, and they have no choice but to consider you a risky borrower.

Just because more debt could help your credit score, that doesn’t mean you should start taking out loans just to build your credit. The purpose of a good credit score is to save you money. If you’re paying back debt, you’re probably spending more money on interest. A better idea is to start off by building your credit with a low-interest credit card. Pay off your balance each month, and you’ll never need to pay interest at all.

Myth #4: “I don’t need to check my credit score again for at least a year.”

Your credit score can change at any point in time, based on something you did, something you didn’t do or something someone else did. If you close an account, your score will change. If you miss a credit card payment, your score will change. If you apply for an auto loan, your score will change. Your credit score isn’t static.

On the other hand, fretting about your score everyday isn’t necessary, either. Checking your credit score once a month should keep you updated with any important changes. And you can enroll in free credit monitoring, which will send an email to you if something significant changes on your credit.

Myth #5: “Paying off and closing a credit card will help my score.”

Paying down your credit card debt is always a great idea, and it’s usually good for your credit score, too. But closing a credit card—particularly if you only have a few—can actually hurt your credit score. One of the main factors influencing your credit score is your credit utilization rate. This is basically the percentage of your credit limits you’re using at any given time. It’s best to keep this rate below 30 percent for good credit health. If you close a card with a high credit limit, and you’re carrying balances on other cards, your utilization rate will be inflated, causing your credit score to drop.

There are, however, times when it makes more sense to close a credit card. For instance, it could be a good idea to close a card you don’t use that’s charging you a high annual fee. Otherwise, start using the card again just a little each month; it’ll continue to help you build your credit.

What credit score myths have you heard?

Bethy Hardeman writes on credit, personal finance and the economy for CreditKarma.com, a free credit management website that helps more than 8 million people access their credit score for free.